The Russell 2000 index crashed for the second consecutive week as the fear and greed index moved to the extreme fear level. The closely-watched iShares Russell 2000 ETF (IWM) plunged to a low of $212 on Thursday, down by over 13% from its highest level this year, meaning that it is in a technical correction.
Fear and greed index has crashed
The Russell 2000 index has crashed this week as investors remained highly fearful. The CNN Money fear and greed index has tumbled to the extreme fear zone of 19, the lowest level since August last year and much lower than last year’s high of 75.
All the subindices in the fear and greed index have tumbled to either the fear or the extreme fear zone. The market momentum has moved to the extreme point as the S&P 500 index has moved below the 125-day moving average.
Further, the stock price strength has moved to the extreme fear as the net new 52-week lows in the S&P 500 index fell. The stock price breadth, put and call options, and safe haven demand have tumbled to the extreme fear zone.
There are three main reasons why the fear and greed index has crashed. First, Donald Trump has threatened to impose substantial tariffs on countries like China, Canada, and Mexico. He has said that those on Mexico and Canada will start next week, and that the administration will add another 10% on Chinese goods.
The implication of all this is that the US and its top trading partners will move into a trade war that will benefit no one. Many American companies, especially those in the Russell 2000 index, will be hit particularly hard since they mostly import raw materials and products from other countries.
Donald Trump’s tariffs and NVIDIA earnings
Second, the tariffs will expose the Federal Reserve since it has no good options. Most analysts anticipate the bank will start cutting interest rates, a move that may lead to higher inflation.
Third, the Russell 2000 index is falling as signs emerged that the artificial intelligence boom may be coming to an end. While NVIDIA published strong financial results, its guidance was lower than what some analysts were expecting. That explains why the NVIDIA stock price crashed after the numbers.
The end of the AI boom will also expose the US equities market since it has been the main driving force for the market in the past few years.
There have been some notable gainers in the Russell 2000 ETF. Fubo TV stock has jumped by 180% this year, while Corsair Gaming stock has soared by 72%. Hims & Hers stock has soared by 70%, while Root, Pitney Bowes, and LegalZoom have soared by over 30%.
Russell 2000 IWM ETF analysis
The IWM ETF stock price has crashed to a low of $212, down from the year-to-date high of $244.40. It has plunged below the lower side of the ascending channel pattern and the 50-week moving average.
The MACD indicator has pointed downwards, with the two lines nearing the zero line. Also, the Relative Strength Index (RSI) has moved below the neutral point at 50.
Therefore, the stock will likely continue falling as sellers target the key support at $200, the highest swing in March 2022.
On the positive side, the Russell 2000 ETF has formed a megaphone pattern, pointing to a potential rebound. Such a move will point to more gains, potentially to $245.
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